ACHILLION PHARMACEUTICALS INC. is an innovative pharmaceutical company dedicated to bringing important new treatments to patients with infectious disease. The company\'s proven discovery and development teams have advanced multiple product candidates with novel mechanisms of action. Achillion is focused on solutions for the most challenging problems in infectious disease -- HIV hepatitis and resistant bacterial infections. Achillion sees significant competitive advantages in developing anti-infective drugs compared to developing drugs in other therapeutic areas. The emergence of drug resistance seen with current antiviral and antibacterial therapies creates a continuing need for new drugs providing a large and growing potential business opportunity. In addition development cycle times tend to be somewhat shorter in infectious disease than other therapeutic areas and early drug development results tend to be more predictive of longer term results. Achillion Pharmaceuticals Inc. has a market cap of $55.2 million; its shares were traded at around $2.09 with and P/S ratio of 13.7.

Highlight of Business Operations:

We have devoted and are continuing to devote substantially all of our efforts toward product research and development. We have incurred losses of $179 million from inception through June 30, 2009 and had an accumulated deficit of $193 million through June 30, 2009. Our net losses were $12.8 million and $12.8 million for the six months ended June 30, 2009 and 2008, respectively. We have funded our operations primarily through:

To date, we have not generated revenue from the sale of any drugs. The majority of our revenue recognized to date has been derived from our collaboration with Gilead to develop compounds for use in treating chronic hepatitis C. During the six months ended June 30, 2009 and 2008 we recognized $(300,000) and $1.0 million, respectively, under this collaboration agreement.

Upon initiating our collaboration with Gilead, we received a payment of $10.0 million, which included an equity investment by Gilead determined to be worth approximately $2.0 million. The remaining $8.0 million is being accounted for as a nonrefundable up-front fee recognized under the proportionate performance model. Revenue under the proportionate performance model is recognized as our effort under the collaboration is incurred. Payments made by us to Gilead in connection with this collaboration are being recognized as a reduction of revenue. When our performance obligation is complete, we will recognize milestone payments, if any, when the corresponding milestone is achieved. We will recognize royalty payments, if any, upon product sales.

We estimate that the future expenses associated with early clinical development through proof of concept of ACH-1625, our HCV protease inhibitor, will be approximately $3.0 million, exclusive of internal personnel costs. We estimate that the future expense associated with early clinical development through proof-of-concept of ACH-1095 will be approximately $3.0 million, exclusive of internal personnel costs. Following the May 2009 meeting of the joint research committee, we have proposed a revision to our license and collaboration agreement with Gilead which may allow us to bear all future costs related to clinical development of ACH-1095, while costs associated with any additional compounds would be jointly borne by the both parties. There can be no assurance, however, that the parties will reach a definitive agreement regarding this revision to the agreement. If we are unsuccessful in coming to an agreement with Gilead, we will not have the right to advance ACH-1095 independently.

Revenue. Revenue was $(7,000) and $398,000 for the three months ended June 30, 2009 and 2008, respectively and $(300,000) and $1.0 million for the six months ended June 30, 2009 and 2008, respectively. The decrease in revenue in 2009 is substantially due to the fact that there was no recognition of revenue related to the non-refundable upfront fee, pre proof-of-concept milestone and FTE reimbursement under our collaboration with Gilead.

Research and Development Expenses. Research and development expenses were $4.4 million and $5.5 million for the three months ended June 30, 2009 and 2008, respectively, and $9.2 million and $10.5 million for the six months ended June 30, 2009 and 2008, respectively. The decrease for the three and six months ended June 30, 2009 was primarily due an upfront license fee under our collaboration with FOB Synthesis in 2008 that was not continued in 2009, combined with lower personnel, scientific consulting and intellectual property costs, offset by increased costs associated with ACH-1625 preclinical studies. We expect that

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